Next Stop: Transit
Now that more people have jobs in the Bay area, the region’s highways are again growing congested. The Census Bureau reports that San Francisco’s average commute time, at nearly 29 minutes, is the ninth-longest in the nation, and the situation isn’t much better in Oakland or San Jose. Throw in that California has the country’s highest gasoline prices and worsening air quality issues, and Northern California residents are in a no-win situation virtually every rush hour. Not surprisingly, apartment developers and city planners are working to add high-density housing that’s convenient to the region’s extensive mass transit system. About 3,700 of the 7,300 apartments under construction in the San Francisco area in spring 2005 are being built on sites within two miles of a BART (Bay Area Rapid Transportation) or Caltrain station.
The biggest concentration of “smart growth” projects lies along BART’s San Francisco International Airport extension, which stretches between the California cities of Colma and Millbrae. At the Colma station, local builder JSM Enterprises is putting the finishing touches on La Terrazza, a $35 million property that features 153 apartments and 3,500 square feet of ground floor retail space. At the next stop–South San Francisco station–Solaire is another transit village, this time built atop the BART facility’s parking lot. San Diego-based Fairfield Properties plans to finish Solaire, which will include 360 apartments, a 16,000-square foot grocery store, and two parking decks, in summer 2006.
The Crossing at San Bruno, located within walking distance of both BART and Caltrain stations, is the region’s most ambitious transit-oriented development. Plans call for nearly 1,000 apartments, a 228-unit senior housing complex, a 500-room hotel, and possibly office and retail space. The first phase of development is the 300-unit apartment community Meridian at the Crossing, a joint effort from Regis Homes of Northern California and TMG Partners. Just opened, this $68.7 million property boasts an array of common-area amenities that include a heated swimming pool with retract-able roof. The next phase of apartments will be called Paragon at the Crossing, and groundbreaking is scheduled for 2006.
Condo Appeal
Condominiums, which have been a key part of the downtown San Francisco housing mix, now are hot throughout the Bay area. It’s easy to understand why. First and foremost, condos cost 20 percent to 25 percent less than the typical single-family home, according to the California Association of Realtors, making condos the only for-sale housing that many households can afford. Further-more, most single-family home construction has been pushed to the region’s fringes, so condos usually are more convenient to job centers and cultural or entertainment attractions.
One of the most notable new condo markets is Emeryville, which is sandwiched between the University of California-Berkeley area and downtown Oakland. In a process that’s still ongoing, years of repositioning efforts have transformed this once gritty, industrial town into a new-economy business hub that includes employers like Pixar Animation Studios, software maker Siebel Systems, and biotech company Chiron.
Residential development is in high gear, too. More than 1,000 condominiums are found in 14 separate developments that are either just completed or under construction. Five additional communities where construction should kick off by the end of 2005 are reported on the drawing board, which will make for quite a makeover for Emeryville, a town limited to just 1.2 square miles in total size.
Michigan-based Pulte Homes has been particularly active in Emeryville. The firm hit a home run with its first project in the market–Liquid Sugar, a 55-unit condo development built on the site of a former corn syrup plant. Pulte followed up with the equally successful Elevation 22. Pulte’s third community is the 92-unit City Limits, which is already 60 percent sold out. It’s appropriately named: City Limits straddles the Emeryville/Oakland border.
With momentum accelerating, Pulte has been able to substantially bump its Emeryville condo prices. “In general, from when we opened Liquid Sugar to where we are today at City Limits, comparable unit pricing has increased about 35 percent, or about $150,000 a unit,” says Steve Kalmbach, Northern California division president at Pulte Homes. “This jump was due to the success of Liquid Sugar, the quality of the design, and, in general, how well the units were received by our buyers.” Pushing even higher, Pulte has set tentative pricing at around $500,000 to the high $600,000s for Glashaus, a 140-unit property that the company expects to start in late 2005 at the corner of 65th and Hollis Streets.
Room for Rent Hikes
Overall, though, the Bay area housing market is exhibiting trends that are slightly different from the rest of the country. While construction is up for both the apartment and condominium sectors, a slowdown in single-family home deliveries means that totalhousing production is not particularly worrisome–especially if new job creation happens at the level most economists expect. Look for San Francisco to rank near the top of the list of the nation’s apartment occupancy leaders for the near term, while occupancy in Oakland and San Jose should at least hold steady.
The outlook for rent achievement appears promising, too. Though it’s unreasonable to expect rates to return to their early-2001 high anytime soon, the return of rent growth well above the national norm certainly should be within grasp. Even if single-family home prices dipped, there’s still ample room for rents to increase. The Bay area, then, should join places like the Florida markets, Southern California, Austin, Seattle, and Las Vegas among the country’s rental revenue growth leaders in the immediate future.
Good News
Mixed-income multifamily does not hurt property values. Despite protestations that mixed-income multifamily developments reduce property values, a new study from the Massachusetts Institute of Technology’s Center for Real Estate shows that there’s no significant difference in home-price appreciation between residences located close to a mixed-income development or elsewhere in the community.
The study, “Effects of Mixed-Income, Multi-Family Rental Housing Developments on Single-Family Housing Values,” looked at seven such developments in the Boston suburbs. The results effectively disarm one commonly used weapon in the fight against higher-density, affordable housing projects. “We were extra-meticulous in our research because this is such a hot-button issue,” says Henry Pollakowski, a housing economist at MIT’s Center for Real Estate and the study’s co-author. “We talked to planners, tax assessors, and neighbors, as well as looking at patterns over time for the price comparison.”
Developers are happy to have proof of what they’ve been claiming all along. “I’m not at all surprised by the findings,” says Mark Huppert, principal with Seattle’s Catapult Community Developers. “The reality is that new multifamily housing–when appropriately designed to accommodate a retail, pedestrian, and neighborhood orientation–can in fact enhance the sense of activity and services. This report will serve as a tool for getting potential opponents to the table and will open up lines of communication before opposition can be formed.”
–Margot Carmichael Lester
To read the study, visit http://web.mit.edu/cre/research/hai/40b.html.